"IP Transition:" Turning Off PSTN by Another Name


There is a very-practical reason why discussion of a transition to IP technology, and an end to time division multiplex technology, is accelerating in the U.S. market and policy community.

If you look at services with growing revenue, those services are on networks using Internet Protocol. If you look at services whose revenues are declining or peaking, those services are on the legacy time division multiplex network.

Simply, customers are deserting the older networks in favor of mobile and broadband alternatives that are IP-based. And that means revenues are declining on networks with high fixed costs.

At some point, there will be so few customers left on the older networks that they cannot be supported any longer, especially when all legacy services can be delivered using the new IP networks.
Nor is the IP transition “just” a U.S. problem. Mobile broadband supplied by the mobile IP network now is driving revenue growth, while voice revenues on TDM networks are declining at serious rates in the United Kingdom, France, Germany, Italy, the United States, Canada, Japan, Australia, Spain, the Netherlands, Sweden, Ireland, Poland, Brazil, Russia, India and China in 2011, a study by Ofcom, the United Kingdom communications regulator, finds. 


Fixed voice revenues fell, collectively, by an average of 7.3 percent in 2011, compared to a 7.1 percent decrease in 2010.

Fixed voice revenues fell in all 17 countries in 2011, the fastest rates of decline being found in the BRIC countries, with revenues falling by 17.8 percent in China and 15.3 percent in India during the year. Among the non-BRIC countries, the annual declines in revenue were highest in Poland (13.3 percent) and France (13.1 percent). That’s the legacy network.

In contrast, mobile data has seen the fastest growth rate, with a compound annual growth rate of 25.4 percent between 2006 and 2011. That’s one of the newer IP networks.

The IP transition for the whole U.S. communications business is getting new attention as the Federal Communications Commission launches a new effort to plan for an end to the time division multiplex “public switched telephone network.”

"The Technology Transitions Policy Task Force will play a critical role in answering the fundamental policy question for communications in the 21st century: In a broadband world, how can we best ensure that our nation's communications policies continue to drive a virtuous cycle of innovation and investment, promote competition, and protect consumers?" said FCC Chairman Julius Genachowski.

The effort will face lots of political pressure from lots of vested interests whose business interests might be helped or harmed in any transition. But the transition has to happen. Voice, the specific service the TDM network was built to deliver, cannot support the network, long term.

Fixed voice still represents 25 percent of total service provider revenue in the 17 countries, Ofcom reports. But only a quarter of total revenues. And those revenues steadily are declining.

Fixed voice revenues fell by 5.2 percent in the United Kingdom during 2011, a higher rate that the 3.3 percent average in the five years to 2011.

Significant declines in voice pricing are largely to blame. The fastest rates of fixed voice pricing decline being found in the BRIC (Brazil, Russia, India, China)  countries, with revenues falling by 17.8 percent in China and 15.3 percent in India . Among the non-BRIC countries, the annual falls in revenue were highest in Poland (13.3 percent) and France (13.1 percent).

But consumers also are abandoning use of fixed network voice, as well. The total number of fixed lines among the 17 countries fell by four percent to 767 million in 2011. The number of lines fell in all of these countries (except Brazil and the U.K.), where the number of lines increased by two percent and 0.2 percent respectively.

Fixed voice call volumes also fell in all of the countries for which figures were available in 2011, except France.


The logical response, for any executive facing that sort of revenue erosion would be to “cut costs.” The problem is that some service providers already have cut significantly, and some costs cannot be cut, due to pension obligations, union rules, contracts or government edicts.

At some point, no amount of additional cost cutting will compensate for falling revenues. Shutting down the TDM networks won’t necessarily fix the voice revenue problem. But all the future services will require the IP network, so whatever happens to the voice business, IP can provide it at lower cost.

And lower cost now matters, as most voice and even broadband access are migrating to the mobile networks. That means less potential revenue to support even the IP fixed network.

In fact, so fast are mobile high-speed access revenues growing that, for the first time in 2011, overall mobile data revenues exceeded fixed broadband revenue in the 17 countries.

In fact, the salience of mobility is a relatively new form of pressure. The countries where the highest proportion of calls originated on mobiles in 2011 were China (97 percent), the United States (82 percent) and Poland (81 percent), the Ofcom study reports.

As always, the transition discussions and policies will be contentious and highly political, since many contestants stand to lose or gain a great deal, depending on how and when the transition happens.
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